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Postal Services Bill [HL]

I immediately confirm that the noble Lord, Lord De Mauley, is right that the Government’s intention is to take over the defined benefit scheme but not the defined contribution scheme. I am grateful to my noble friend for his amendment. It provides a valuable opportunity for me to explain further the Government’s proposals in respect of the treatment of additional voluntary contributions, or AVCs. At present, the members of the scheme can make additional contributions in order to increase their provision for retirement. They can do this either through the contributions for the purchase of "added years" of reckonable service, which are invested with the pension plan’s main assets, or by investing in a range of pooled investment vehicles as part of a "money purchase" arrangement. Around 5,000 employees are currently purchasing added years of service. They represent just over 3 per cent of current active members. The total value of investments under the money purchase arrangements was £84 million as at March 2008. This comprises some 19,300 individual AVC contracts, of which roughly half relate to active members. The Government’s intention in proposing subsection (2)(b) has been to provide the flexibility to enable the inclusion of rights that have been accrued through additional voluntary contributions, or AVCs, within the qualifying accrued rights to be transferred to the Government. The amendment raises the question as to the comparative treatment of the two categories of benefit to which AVCs can relate. The Government have been discussing this issue with the pension plan trustees, both in regard to the underlying policy position and the implications in terms of administration. At this point, the Government are minded to adopt a solution that follows the intention behind this amendment. Where AVCs have been paid prior to the qualifying time for the purchase of added years, it makes sense for the additional service already bought to transfer to the Government with the other qualifying accrued rights. This is because the purchase of added years relates closely to the defined benefit provisions in the main scheme and carries many of the same risks in terms of longevity and investment returns. In contrast, the investments related to the money purchase AVCs do not have these same characteristics and could therefore legitimately remain with the pension plan. This approach, and indeed the alternatives, has implications for co-ordination between the administration of the new government-backed scheme and the pension plan. Although the numbers of members involved are small, the Government would like further time to conclude consultation with the trustees on these issues before returning to the question of whether a legislative amendment is required. On this basis, the Government will agree to consider the amendment and return to the issue on Report.